Budget 2016: Construction & Real Estate Sector

There were a number of announcements in the Chancellor’s Budget which will have a direct impact on the Construction and Real Estate Sector. But what does it all mean and how will it impact the sector?

Stamp Duty Land Tax

The new rates of stamp duty land tax (SDLT) (the extra 3%) for residential property purchases will apply from 1 April 2016 and there will not be a relief for people or companies buying in bulk as was previously expected. This will mean that all residential property purchases will be caught by the new provisions.

In addition the Chancellor announced that commercial property transactions will be subject to a similar basis for SDLT purposes as that which applies for residential property. The old slab rate basis will be replaced by a graduated basis. The box below shows the new bands for commercial transactions:

Property value band

Rate from 17 March 2016

£0 – £150,000

0%

£150,001 – £250,000

2%

£250,001 +

5%

In Wales & Scotland these higher rates will apply until 1 April 2018 when they will set their own stamp duty rates (which could be higher or lower).

Multiple Dwellings Relief

Where multiple dwellings are purchased, the Multiple Dwellings Relief will continue to apply but the minimum rate is 3%. The additional rates will also apply where claims for Multiple Dwellings Relief (MDR) are available (i.e. relief from SDLT that can entitle a taxpayer acquiring more than one residential property to pay SDLT at rates calculated on the average consideration payable for each property). Purchasers of six or more residential property can treat the acquisition as commercial such that the commercial rates of SDLT would apply to the transaction. Due to the increase in rates for SDLT in respect of commercial property acquisitions, purchasers will need to establish whether they are better off treating the acquisition as commercial or making a claim for MDR.

Incorporation relief which can enable you to avoid the capital gains tax on the transfer of property to a company where you run a business has not been removed as speculated. This is a very complex area where specialist advice must be sought but generally speaking relief may be available where it can be reliably demonstrated that a property portfolio is run as a business by the owner(s) as opposed to as merely an investment.

Corporation Tax

The rate of corporation tax will be reduced to 19% from April 2017 and to 17% from April 2020, making incorporation more attractive. This could be encouraging for Buy to let investors who are particularly affected by the restrictions to higher rate tax relief on interest which starts to come into effect from April 2017.

Capital Gains Tax

The reduction in the top rate of capital gains tax of 28% to 20% for individuals will not unfortunately apply to residential property sales. If an individual does not qualify for Incorporation relief as referred to above then the potential tax cost of incorporation will require careful consideration.

Planned Infrastructure Spending

£80m has been pledged to fund commission of plans for the £28 billion Crossrail 2 scheme in the South-East, which should receive legislative backing by the end of the current Parliament. Transport for London has been asked to match this contribution;

in respect of housing, a new £1.2bn fund will be launched to fund the release of brownfield land for the development of starter homes around the country;

development of flood defenses will receive £700m raised by insurance premium tax increases;

£135m will be made available to develop plans for major rail and road projects in the north of England (part of the Northern Powerhouse project), including High Speed 3 and a trans-Pennine tunnel; and

Highways England will receive funding to accelerate crucial motorway improvement works on the M62.

Contact us If you would like to understand more about any of these areas or would like to discuss this with a member of our Construction & Real Estate Team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with your local representative.